Economist says don’t read too much into Aussie decline
NEW ZEALAND’S housing market is unlikely to follow Australia’s decline, BNZ chief economist Tony Alexander says.
He expects prices to be flat or slightly rise over the next few years as the market transitions between periods of surging house values.
Average prices in Australia have slipped 3.5 per cent over the past year, with the heaviest falls being in Sydney (down 7.4 per cent) and Melbourne (down 4.7 per cent).
‘‘Will we follow Australia? Probably not because there are some special factors behind declines across the Tasman,’’ Alexander says in his Weekly Overview newsletter.
‘‘The most important of these is that banks in Australia have engaged in irresponsible lending over the past few years, signing people up to mortgages they could not really afford and facilitating hefty purchasing by investors using interest-only financing …
‘‘While we have seen some tightening of bank lending conditions in New Zealand in recent times and some tendril of what happens in Australia is probably still to thread its way here, we are not seeing or going to see the same credit crunch that is happening across there.’’
Alexander says there also wasn’t the same rush of Chinese money into NZ as happened in Australia, which helped to drive prices and construction higher.
‘‘The withdrawal of Chinese new money inflows has hit the two big Aussie capitals hard.’’
Other key differences include Australia’s Reserve Bank raising mortgage rates when the opposite has happened here, state housing taxes that don’t exist in NZ, and an oversupply of apartments in Australia’s biggest cities.
‘‘Here in New Zealand, outside a few regional locations of sustained low long-term population growth (shrinkage in some places), you would struggle to find excess inventories of properties,’’ Alexander says.
He points out NZ’s interest rates are flat to falling while tighter monetary policy could still be ‘‘a long way off’’ with NZ’s core inflation still being only 1.2 per cent.
‘‘House supply is rising but the shortage of tradespeople means further growth may not occur.
‘‘Construction costs continue to rise and rise. Migration flows are easing only slowly.
‘‘And bank lending rules imposed by the Reserve Bank are of course easing.’’
Alexander doubts the Reserve Bank’s relaxing of loan-to-value ratio rules, making it easier for buyers and investors to borrow money, will spur the housing mark.
‘‘The cycle does what the cycle does and the cycle in Auckland peaked out two years ago and is in its flat section for perhaps three-tofour more years regardless of RB actions. The rest of NZ will eventually follow.’’
So the prospects for borrowers are good, ‘‘especially given the competition between banks to attract home-buyers in a flattish market.’’